History Lessons
History tells us that the faster a country could act to overcome adverse economic conditions, the better it can work it way through the crisis and emerges stronger when the economy recovers. After World War 2, both Germany and Japan suffered significant economic downturn, beside the humiliation of defeat; they had to rebuild their economy and helped their people went back to work. There were many books written about this period but most focused on the program of economic aid for the post war reconstruction where the U.S provided loans assistance ($13 billion) to support these countries but they failed to mention the efforts of Germany and Japan to overcome their obstacles and created the “Post war economic miracles”.
Although the monetary assistance from the U.S was needed, Germany and Japanese government relied more on their own “economic intervention plans” that focused on two key areas: Improve education systems and organize the cooperation between manufactures, suppliers, and banks to improve the economy. Government of both countries rebuilt their manufactures by prioritized which technologies were important to import since their loaned money was limited. Government people directly negotiated on prices and conditions of imported technology to ensure that they had the best deals possible. By focusing only on few selected areas, they allowed their economy to grow in the most profitable industries such as automobile, steels, pharmaceuticals and telecommunications. Manufacturing productivity was improved through the use of new equipments, new facilities, new management, and process standardization. At the same time, both governments focused on improve their education systems, especially the higher education curricula, to concentrate on few selected areas: Medicine, commerce, laws, economics and engineering. Again by focusing only in few areas, they developed quickly the skilled people to support the industrial needs of their growing economy. Especially in Japan, the improved education system still maintain the tradition idea that education is highly esteemed and to be pursued seriously with moral and ethical practices fully integrated into the central part of the system. Despite changes and foreign pressures, Japanese were still able to maintain the philosophy of the Meiji period that certain tradition practices (ethics & moral) are to be preserved when adapting foreign ideas and methods to its education system. I believe that this wisdom actually help transformed Japan into a modern society with rapid economic growths throughout the 60s, 70s and 80s. In 1965, Japan GDP was $ 90 billion but in 1985 it soared to $ 2.5 trillion. When both education and manufactures areas were improved, begin in the 1970 government started to invest in the infrastructures by building highways, subways, roads, bridges, airports and dams, using their own companies that managed by their own people, instead of relying on foreign companies and their expertise. I also considered this move to be brilliant because self-sufficiency is the key factor for any developing countries that want to move up to the next level.
The vision that developing countries could catch up with developed countries can be found in the book “The Flying Geese” of Kaname Akamatsu published in 1962, where the author predicted that that Asian countries will be able to catch up with the West as a part of a process where the manufacturing of products would continuously move from the more advanced countries to the less advanced ones. The author pointed to the traditional highly esteemed education system as the fuel and the motivation of Asian students as the fire that make economy miracle happen rapidly. He used the pattern of geese flying in the V shape in the sky with Japan being the leader and believed that Japan will sell products to other countries around the world because Japan had both “the fuel and the fire”. His vision was very advance at that time (1962) but many people laughed at him and scolded him as a “Stupid patriotic dreamer” but as time changes we can admire his visionary as things began to happen.
In the early day of Post-war, developed countries have dominant position in most global trades but eventually developing countries are moving up and take over several markets, competing with well-established countries. Let's look at some facts: From 1965 to 1980, the U.S and Europe dominated the semiconductor industry but begin in 1982, Japan, S. Korea, and Taiwan quickly took over this industry and now have 92% of the market. Today, China is investing heavily in this industry and could become a major competitor. From 1940 to 1990, the U.S dominated the automobile industry until 1980 where Japan entered this market and eventually competed directly with U.S automakers by having better quality and design cars. In 2005 Toyota defeated General Motor, Ford and Chrysler and became the largest automobile manufactures in the world. Since 1990 most electronics (TV, Stereo, phones etc.) and low cost manufacturing products (Textiles, shoes, toys etc.) are dominated by China and begin in 2001, most knowledge works and services such as Information technology are dominated by India.
What happened to developed countries and why they let it happened? The answer is simple: Complacency. With successes and dominant positions, many developed countries became arrogant and did not pay attention to their competitors. Many did not even have strategies in this dynamic and highly competitive market. When oil price increased steadily, U.S automakers were still producing large cars that consume a lot of gas when Japanese carmakers understood that the market had changed and people wanted cars that have better gas consumption. In high technology industry, semiconductor companies were highly profitable but they did not invest in their manufactures for better efficiency, the lacking of long term plans provided opportunities for Japan, Korea and Taiwan to improve their manufacturing facilities and massively produce better products at the fraction of the price. Before 1992, 95% of components in the personal computer were made in the U.S but today 98% of them were made elsewhere, only the CPU component is still made in the U.S. Similar examples can be found in almost every sector in industries. According to the 2008 U.S government studies, during the past 25 years, developed countries have lost 70% of world market share in 20 major industries, including steel, automobile, consumer electronics, machine tools, textiles, semiconductors, construction equipment and medical equipment. In the past ten years, the U.S has gone from being the world's largest creditor nation to the world's largest debtor nation with 65% of total debt is financed by China and Japan. With globalization, Strong economic forces are redrawing the map of the world with a change in the direction of foreign direct investment (FDI) and now it is a “reverse FDI”, as observed in the emerging-market sovereign wealth funds (state-owned investment funds) to bail out the U.S. financial system during this financial crisis. Much of the funding came from China and India.
With globalization, the faster a country can change the better it can position itself. Traditional economic force was capital (The more money, the better) but now the main economic forces are strategies, innovation, and skilled workforce (The faster you can innovate, the better). However, innovation needs strategy and people to execute so the economic equation has changed from focus on capital (money) to focus on skilled people (knowledge worker). These new forces have already changed the balance of the global market but developing countries that do not understand this new equation may miss this “golden opportunity”. Why focus on people? In developed countries, there are some undercurrents that drastically changing the social and economic structure: The aging populations and declining birth rates. With majority of workers reaching retirement and without younger workforce to replace them, many will not be able to keep their economies operating at full force. To mitigate this risk, developed countries are opening their borders and actively inviting skilled workers to work in their countries. The most significant example is Japan, which traditionally has been a closed society. Begin in 1998 Japanese government has started inviting skilled immigrants, mostly from China, to come because Japan no longer has sufficient numbers of employees in its population. Europe and the U.S. will face this problem in the next few years as their working population decline. In stark contrast, 76% of India and China's working population is under the age of 26 and they will be a tremendous workforce that can manage and operate their growing economies. Thus, the competition for highly skilled workers was intense will become more intense in the near future.
As competition heat up, developed countries will have to recruit more workers. During an interview with the New York Times, Jeff Immelt, the CEO of GE said: "To me, globalization means bringing together the best and brightest from around the world. We are making it a global intellect, tapping into the best brains on a global basis. Our company already hired 50,000 engineers from outside the U.S., and we are opening our largest development center in the world in Bangalore, India.” More recently, two large telecommunication companies, Nortel and 3Com formed collaboration with Chinese telecommunication Huawei, to use its large engineer workforce for design and build telecom equipments. By combining knowledge and skills, Huawei increase its sale 57% outside China, with a 15% market share in Asia and 9% in Latin America. Another U.S large company Proctor &Gamble realized that its internal business model (designed in 1980s) could no longer sustains the growth it needed to stay on top so they hired hundred thousand engineers from all over the world to work for them, via the internet, while still staying in their own countries. This idea is being adopted by many large global companies as the concept of “enterprise-without-walls”.
In summary, the key idea in this globalization lecture is knowledge and skills which are the result of a good education system. For developing countries, improve education and training should be the highest priority as we already seen in the lesson of history (Japan, Germany, Korea, India, China and Taiwan). Have you ever ask what happened if Japan, Germany, India and China did NOT focus on education improvement? You could find the answer in Ghana, Zimbabwe, Congo, Sudan, Cameroon, Angola and Ethiopia (Africa) or Nicaragua, Honduras, Guatemala, and Columbia (Central America). All of these countries have rich natural resources and strong agriculture economy but did not invest much in education. They rely on agriculture trades but without skilled people to manage their own economies, many fell victims to foreign trades and exploitation which resulting in wars, crimes and poverty.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
